In today's globalised world the transport of goods by sea has become a vital component of international trade. However, with this increased reliance on maritime shipping comes a heightened need for protection against potential risks and losses. Marine cargo insurance is a crucial safeguard for businesses involved in the movement of goods across oceans. Here we explore the protections provided by modern marine insurance, key terms, the types of cover available and how it can mitigate risks in your business operations.

What is marine insurance?

Marine insurance covers loss or damage caused to ships, terminals and any transport vessels or cargo by which goods are transferred, obtained or held between ports of origin and final destinations. A marine insurance policy is designed to minimise the financial loss incurred by a policyholder in the event of an accident, natural hazard or other mishap.

Given that 90% of all Australian international trade is carried by sea, marine insurance is one of the most common — and essential — forms of insurance. Without marine insurance, the Australian maritime industry would be fully exposed to risks including:

  • vessel and machinery failure
  • cargo loss
  • damage or loss caused by natural disasters and inclement weather
  • piracy and armed robbery.

What is hull and machinery insurance?

Hull and machinery insurance is an important aspect of marine insurance. It's specifically designed to cover expenses arising from damage to a ship's hull (the main body of the ship) plus any fixtures attached to it.

Hull and machinery insurance helps vessel owners protect themselves financially against physical loss or damage for not only the hull of the ship but also the vessel's fittings, its machinery, installed equipment and disbursements. The policy can also be extended to include liability for damage to third parties and third party property.

What is marine cargo insurance?

Marine cargo insurance is specifically designed to cover goods in transit against loss and damage arising from external causes, which includes (but is not limited to):

  • natural disasters
  • theft and piracy
  • collision
  • sinking or stranding of ships
  • fires and explosions
  • damage caused by jettison or discharge of cargo due to distress.

Marine cargo insurance policies typically cover transits by water, air, courier, road and rail, however the policy coverage is different to cargo via standard land transport such as truck/van transits. Sound confusing?

It's a complex area and we recommend talking to your broker about your transit insurance requirements to understand how and what cargo is best covered by different insurance protections available.

What is a marine open cargo policy?

A marine open cargo policyor open marine insurance policy provides a coverage for an indefinite number of dispatches. It's a useful policy for bulk commodity traders, operators of commercial trading vessels, fleet owners and generally anyone involved in the movement of goods, because it removes the need to take out individual insurance policies for each journey.

The values of individual shipments aren't known in advance under an open policy, so the underwriter agrees to insure all shipments on an 'agreed value' basis. The policy may cover both incoming and outgoing consignments and remains open until it's cancelled or the sum insured is exhausted, whichever comes first.

What is a valuation clause in a marine insurance policy?

A valuation clause in a marine insurance policy establishes the insured value of the goods being transported. It contains a fixed basis valuation — agreed upon by the policyholder and the insurance company — which determines how much is payablein the event of a covered loss or damage.

This is what makes marine insurance different from other (non-marine) forms of insurance. Most marine insurance policies are written on an 'agreed value' basis, meaning they're based on a predetermined valuationof the items being insured — cargo, vessels, machinery, etc. In the event of damage or loss, the policyholder is paid the agreed value with no deduction for depreciation. Other insurance policies, such as car insurance, are typically written on the basis of market value.

What are Incoterms?

International Commercial Terms (Incoterms) are a set of pre-defined commercial terms developed by the International Chamber of Commerce1. They're designed to communicate the tasks, costs and risks associated with the global transportation of goods, and provide rules and guidance to importers, exporters, insurers, and just about everyone involved in trade.

There are Incoterms that apply to any mode of transport and terms that are specific to 'sea and inland waterway' transport. These terms have a direct impact on your insurance needs and obligations, and it can get complicated. You should talk to a specialist marine insurance broker to understand how Incoterms impact your marine insurance policy.

What is marine protection and indemnity insurance?

Marine protection and indemnity (P&I) insurance covers vessel owners against third party risks. A typical marine P&I policy covers loss of life, injury and illness of crew members and other third parties, as well as damage to cargo, wreck removal costs, collision liability and much more. Given the scope and cost of these exposures, marine P&I insurance usually includes very high limits of liability.

What is marine liability insurance?

A marine insurance policy typically covers a policyholder's liabilities towards third parties. Most of these liabilities arise in the event of incidents such as collisions with other ships, allision (collision with a stationary ship) and wreck removal. Cargo owners can use a marine insurance policyto limit their liability with regards to loss or damage of goods carried by ship. A comprehensive marine insurance policy can help cover your risks and keep liability to a minimum.

Does marine insurance include cover for cyber crime and cyber risks?

For marine, cargo and logistics companies, the threat of cyber crime and cyber attack is very real and very common. Unfortunately there is no single marine insurance policy or foolproof solution that responds to every risk. Some insurers may offer cyber crime extensions to existing marine insurance policies, but many of these provide insufficient protection. A stand-alone cyber insurance policy is always recommended in addition to a marine insurance policy.

How Gallagher can assist marine operators

The Gallagher specialist Marine team advises marine clients in navigating insurance and risk market volatility and changing conditions, and in providing timely responses and necessary information for assessing the global macro environment — which is an integral part of the Gallagher Marine service offering.

connect with us


1International Chamber of Commerce, accessed 3 Apr 2024.


Gallagher provides insurance, risk management and benefits consulting services for clients in response to both known and unknown risk exposures. When providing analysis and recommendations regarding potential insurance coverage, potential claims and/or operational strategy in response to national emergencies (including health crises), we do so from an insurance and/or risk management perspective, and offer broad information about risk mitigation, loss control strategy and potential claim exposures. We have prepared this commentary and other news alerts for general information purposes only and the material is not intended to be, nor should it be interpreted as, legal or client-specific risk management advice. General insurance descriptions contained herein do not include complete insurance policy definitions, terms and/or conditions, and should not be relied on for coverage interpretation. The information may not include current governmental or insurance developments, is provided without knowledge of the individual recipient's industry or specific business or coverage circumstances, and in no way reflects or promises to provide insurance coverage outcomes that only insurance carriers' control.

Gallagher publications may contain links to non-Gallagher websites that are created and controlled by other organisations. We claim no responsibility for the content of any linked website, or any link contained therein. The inclusion of any link does not imply endorsement by Gallagher, as we have no responsibility for information referenced in material owned and controlled by other parties. Gallagher strongly encourages you to review any separate terms of use and privacy policies governing use of these third party websites and resources.

Insurance brokerage and related services to be provided by Arthur J. Gallagher & Co (Aus) Limited (ABN 34 005 543 920). Australian Financial Services License (AFSL) No. 238312